Will a Trust Deed affect my credit rating?

16 February2021

Do you have a significant amount of unsecured debt? Are you unable to repay it in a realistic timeframe? If you're in this situation, and you're a Scottish resident, a Trust Deed could be the best way of getting back in control of your debts.

A Trust Deed is designed to lower your monthly repayments to an affordable level, so you can repay whatever you can afford, and on successful completion, any outstanding unsecured debt will be written off.

Keep reading to find out just how entering a Trust Deed could help you deal with your unsecured debts - and how it will affect your credit rating.

What is a Trust Deed?

A Trust Deed is a legally binding insolvency solution. It's available exclusively to Scottish residents, but works similarly to how an IVA (Individual Voluntary Arrangement) does in England, Wales and Northern Ireland.

How does a Trust Deed work?

If your unsecured lenders accept a Trust Deed, it'll become a Protected Trust Deed - which basically means that you and your unsecured lenders will be bound by the agreed terms. Once your Trust Deed becomes protected, you will:

Make single monthly payments of as much as you can afford after your essential monthly costs have been covered
Stop any further legal action from your unsecured lenders
Have any unsecured debt you can't afford to repay written off on successful completion - typically, after three years
Avoid the consequences of bankruptcy (also known as 'sequestration' in Scotland).

Bear in mind that if you're a homeowner, it's likely you'll have to release some of the equity in your home to go towards your repayments.

How could I set up a Trust Deed?

As it's a form of insolvency, a Trust Deed requires the help of a qualified Insolvency Practitioner (IP) if you decide you'd like to set one up.

The IP will work out how much you can afford to repay every month. They'll use this information to draw up a Trust Deed proposal: a document that outlines how much you can afford to pay towards your unsecured debts each month after your basic living costs have been taken into account.

Your IP will send your Trust Deed proposal to your unsecured lenders, and the details will be placed in the Edinburgh Gazette - a specialist publication featuring legal notices read by lenders, credit reference agencies and insolvency professionals.

Unless more than 50% of your lenders object to your Trust Deed - or it's rejected by lenders who 'own' a third of the total debt value - it will become a Protected Trust Deed by law, which means you'll be free of your unsecured debts on successful completion (usually after 3 years).

How will a Trust Deed affect my credit rating?

A Trust Deed comes with a few disadvantages too - like most debt solutions.

The effect on your credit file is quite an important thing to think about. A Trust Deed will be recorded on your credit record by credit reference agencies for six years. As a result, you may find it harder to take out any further credit for three years after your Trust Deed finishes (if it was a standard three-year Trust Deed, that is).

You should speak to a debt professional if you want more guidance on whether or not a Trust Deed is right for you.

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Tags: trust deed, trust deeds, Scotland, scottish, debt, unsecured debt, credit rating, affect credit rating, credit history, credit score